On the Substitutability of Local Newspaper, Radio, and Television Advertising in Local Business Sales
Media Bureau Staff Research Paper 2002-10 (Sept 2002) considers whether there is a single local media market or several distinct local markets for newspaper, radio, and television advertising. Bush (an economist in the Office of General Counsel) defines those markets by estimating the elasticities of demand for such advertising services and by developing a model of local business behavior in purchasing that advertising.
Using reported data on local radio and television advertising revenue contained in the 2001 BIA’s Master Access Database and using data from the Newspaper Association of America on retail ad expenditures, Bush derives estimates of elasticities of substitution, ordinary own- and cross-price elasticities for a representative local business establishment. The estimated elasticities of substitution and the estimated ordinary cross-price elasticities suggest weak substitutability between local media.
An important caveat to these results is that varying degrees of measurement error are associated with local radio revenue and revenue from retail ads in newspapers. Due to these limitations inherent in the underlying data, Bush cautions that the results of his study cannot be considered conclusive even though they are consistent with the predictions of his economic model.